By Trey Price, American Consumer Institute
In the Federal Trade Commission’s long-awaited lawsuit against Amazon, one of the proposed marketplaces was defined as “online superstores.” The focus on size through the qualification of “superstores” reflects the agency’s overall movement against large firms. A barrier to the agency’s case is that the court will likely focus on the consumer welfare standard (CWS) rather than the size. This means they will consider how Amazon’s size has benefited its customers.
The CWS has been the critical test by which antitrust law has been enforced for decades. Before the introduction of this measurement, rulings on antitrust cases did not have a clear method of determining anti-competitive actions. As a result, rulings were ad hoc and sometimes led to outcomes that increased prices, hurting consumers and protecting competitors rather than competition.
In the 1970s, Robert Bork wrote The Antitrust Paradox, which argued that pro-competitive and pro-consumer effects of business actions should be the benchmark for antitrust enforcement.
The FTC argues that Amazon has used its power to monopolize the online superstore market, defined as an online shopping website that offers a wide range of different items and a wide selection of options within those categories.
The behaviors described in this defined marketplace focus on allegations that requiring sellers to use Amazon’s fulfillment service to be eligible for Amazon Prime status is unlawful coercion. However, Amazon states that sellers are not required to use the services.
The FTC’s complaint downplays the pro-consumer benefits of the features it attacks. The superstore model it describes is built on creating a more convenient experience and reducing costs for customers in time and money by allowing them to find what they need from one location rather than making them go to different stores for different items.
In addition, the claim that requiring third-party sellers to use Fulfillment by Amazon (FBA) to be considered eligible for Prime is coercion, given that the services aren’t mandatory. The core of Amazon’s Prime program is fast shipping, which Amazon accomplishes through advanced fulfillment centers and its logistics network, designed to get packages where they need to go as quickly as possible.
The argument that the use of FBA is coercive implies either that the FTC believes third-party sellers should be able to use this service at no additional cost or that Amazon should be restructured in a fundamentally different way. While the specific remedy the FTC wants has not yet been specified, the complaint allows for structural relief, or in other words, forcing Amazon to sell part of its business.
What this structural relief would look like if the FTC won and decided to go that route remains to be seen. However, research suggests that forcing Amazon to restructure could harm consumer welfare.
In “The Economics of Amazon,” Federico Etro summarizes existing literature that suggests interventions would likely harm consumer welfare by degrading services and reducing options for Amazon customers on their website. In addition, Germán Gutiérrez argued in “The Welfare Consequences of Regulating Amazon” that remedies that remove Amazon Prime would hurt consumer welfare and that customers value the selection of products Amazon offers, an essential aspect of their status as a superstore described by the FTC.
The FTC’s lawsuit against Amazon and the open-ended solution to its complaints continues a pattern of moving away from the CWS. Hopefully, the courts will recognize this mistake and focus on protecting the consumer.
Trey Price is a technology policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information, visit https://www.theamericanconsumer.org/ or follow us on Twitter @ConsumerPal.